Verizon and AT&T Reviewed: The Pros and Cons of Rising Smartphones Sales

LONDON, January 24, 2013 /PRNewswire/ --

The increasing demand for smartphones has helped U.S. telecom services providers such as Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) post strong top-line growth in the recent past. However, increasing smartphone subsidies are also hurting profit margin at wireless carriers. StockCall has posted free reports on Verizon Communications and AT&T which can be accessed by registering at http://www.stockcall.com/analysis

On Tuesday, Verizon Communications Inc. reported its fourth quarter financial results. While the company posted a loss for the quarter on a consolidated basis, its wireless division reported strong growth in revenue and customers. See our full report on Verizon by signing up free of charge at http://www.StockCall.com/VZ012413.pdf

Verizon Wireless, a division of the company, reported total revenue of $20 billion in the fourth quarter, up 9.5% on a year-over-year basis. Retail postpaid ARPA (average revenue per account) rose 6.6% to $146.80 per month in the quarter.

During the fourth quarter, Verizon Wireless added 2.2 million net retail connections, which included a record-high 2.1 million retail postpaid net connections. At a technology conference earlier this month, Lowell C. McAdam, CEO of Verizon Communications, said that out of 2.1 million contract customers the company signed in the fourth quarter of 2012, 85% bought a smartphone. In fact, smartphones accounted for over 58% of Verizon Wireless' retail postpaid customer-base at the end of 2012.

While record smartphone sales boosted Verizon's overall revenue, they hurt the company's profit margins as the smartphone sales come with substantial subsidies. In the fourth quarter of 2012, Verizon Communications reported a loss of $1.48 per share on a consolidated basis, up from $0.71 per share reported for the same period in the previous year. Excluding one-time items and the impact of Superstorm Sandy, Verizon's earnings for the quarter were $0.45 per share. Consolidated operating revenue for the quarter was $30.05 billion, up from $28.44 billion reported in the fourth quarter of 2011.

AT&T Results Eyed

Verizon's rival AT&T Inc. [Free Technical Analysis Report on T] [1] will release its quarterly results on Today, January 24, 2013 and figures were not available at the time this article was finalized. Earlier this month, AT&T had announced record smartphone sales for the fourth quarter. The Dallas, Texas-based company said that it sold over 10 million smartphones in the fourth quarter, which included best-ever quarterly sales of Android and Apple smartphones.

Ralph de la Vega, President and CEO of AT&T Mobility, noted that the company had another incredible quarter of smartphone sales as the mobile Internet continues to drive strong growth in wireless.

Given the strong smartphone sales in the fourth quarter, it will be interesting to see how much of an impact smartphone subsidies had on AT&T's bottom-line in the fourth quarter.

Long-Term Benefits of Smartphone Subsidies

While hefty subsidies are hurting profit margins of telecom service providers in the U.S., the strategy is likely benefit in the long-term. According to AT&T's Vega, smartphone subscribers are the industry's most valuable postpaid subscribers with average revenues twice that of non-smartphone subscribers. No surprise then that both Verizon and AT&T, the two biggest wireless carriers in the U.S., are going all-out to gain more smartphone subscribers.

Verizon and AT&T Remain Dominant Players

Verizon and AT&T have been the dominant players in the wireless market in the U.S. over the years. The trend is likely to continue in the next few years as both companies are well ahead of other wireless carriers in LTE (long-term evolution).

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